Addressing threats to health care's core values, especially those stemming from concentration and abuse of power. Advocating for accountability, integrity, transparency, honesty and ethics in leadership and governance of health care.

Thursday, June 13, 2013

The Financialized Medical Center - Executives of Non-Profit Wake Forest Baptist Medical Center Make an "Investor Call," but Have no Investors

We recently discussed the uncomfortable situation of Wake Forest Baptist Medical Center, the non-profit health system/ academic medical center of Wake Forest School of Medicine. The organization suffered acute monetary losses after a problem plagued roll out of its new electronic health record. Presiding over this mess were some extremely well paid executives who had been hailed as "visionaries" by their own public relations people. (Look here and here.)

An Even Bigger Financial Loss

The resourceful Richard Craver, writing in the Winston-Salem Journal, just documented that the financial losses due to this cybernetic chaos now seem even bigger,

The center said Monday in a report submitted to bond agencies
that it had a $62.8 million operational loss and an overall loss of $3.2
million in the third quarter of fiscal year 2012-13, which ended March
31.

Stock investment gains of $54.6 million helped offset much of the operational revenue loss.

Still, the operational loss was $13.2 million
higher than the $49.6 million it reported Dec. 31. At that time, the
center reported $7.4 million in overall excess revenue because of
investment gains.

A Call to Non-Existent Investors

That, however, was not the big news. Mr Craver further noted,

Wake Forest Baptist chief executive Dr. John McConnell and chief
financial officer Edward Chadwick held aninvestors call on Monday to
discuss the financial performance. It is the third such presentation of
the fiscal year, according to the Municipal Securities Rulemaking
Board’s www.emma.msrb.org website.

Mr Craver noted that there was something distinctly odd about this.

The investor call represents a potential blurring of the lines
between how not-for-profit hospitals and corporations operate, which
also includes executive compensation as a hot-button topic.

Analysts said the call is comparable to an
earnings warning that corporations provide when they try to soften the
negative reaction from a poorer-than-projected financial performance.

Wake Forest Baptist did not comment when asked
how long has it made investor calls and who receives notifications of
the presentations. According to emma.org, the center did not have investor calls listed prior to the first quarter of the current fiscal year.

A search of Wake Forest Baptist’s public website
did not find any references to investor calls or quarterly and annual
financial reports. Spokesman Chad Campbell said the quarterly financial
calls are in the public domain.

While US publicly traded for-profit companies usually do schedule
quarterly conference calls with investors to inform them about recent
developments, Wake Forest Baptist Medical Center is clearly not a
publicly held for-profit company. It is a non-profit organization.
Non-profit organizations do not have investors or shareholders,

For-profit corporations also may do periodic calls with bondholders. Wake Forest Baptist Medical Center does have bondholders. But the posted notice for the call discussed above clearly refers to an "investor call," not a bondholders call. One can now listen to the call (+1 855 859 2056, conference ID 90279604), and when I did, I heard the call was introduced by the operator, and by the Wake Forest Baptist Medical Center CFO as an "investor call."

A Financialized Mindset?

So what in the world is going on here? So why would its CEO and CFO make a quarterly call to "investors?" The idea is absurd on its face.

Mr Craver was able to find one person to comment, who seemed to assume that the calls were truly "investor calls," not mislabeled calls to bondholders:

Ken Berger, president and chief executive of Charity Navigator, said a
not-for-profit hospital holding an investors call 'is the antithesis of
why a nonprofit exists.'

'Nonprofits are not supposed to be trying to
maximize shareholder value, but maximize their benefit to the
communities they serve,' Berger said. 'Transparency is great, whether
corporation or nonprofit, for shedding light on financial performance.'

'In this instance, the investor call doesn’t
represent full transparency, but only represents more morphing of a
not-for-profit into a for-profit organization where only a select few
investors are chosen to have access to pertinent current information.'

My guess is that Mr Berger got it right. It may be that the top executives of Wake Forest Baptist Medical Center have the mindsets of executives of a big for-profit corporation in an era of financialization.

In the New York Times Economix blog, Bruce Bartlett, an economist who has served in the administration of two Republican Presidents, Ronald Reagan and George HW Bush, and has worked for two Republican legislators, Jack Kemp and Ron Paul, cited financialization as the big largely anechoic reason for the global economic malaise. He wrote,

According to research
by the economists Jon Bakija, Adam Cole and Bradley T. Heim,
financialization is a principal driver of the rising share of income
going to the ultrawealthy – the top 0.1 percent of the income
distribution.

Research by the University of Michigan sociologist Greta R. Krippner
supports this position. She notes that financialization exacerbates the
well-known problem of corporate ownership and control: while corporate
assets are owned by shareholders, they are controlled by managers who
often extract an excessive share of corporate profits for themselves.

As we have discussed,
for a generation business schools have taught managers that there
primary goal is to maximize shareholder value, which has been
interpreted to mean short-term financial performance. Large
corporations now give top managers tremendous incentives to maximize
such performance, such that top managers have become rich, often the
richest members of society. Many top managers of health care
organizations now come from a business background, and health care
managers, even of non-profit organizations, also get large incentives.

Note also that the two executives on the "investor call" both had outsize compensation in 2011, the latest year for which the non-profit Wake Forest Baptist Medical Center has released the disclosure form (990 form) required by the US government. The CEO, Dr McConnell, received over $2 million, while the CFO, Mr Chadwick, received just short of $1 million. (Look here.) So it looks like they have a good reason to continue to operate a financialized organization so they can keep extracting sufficient revenue to make themselves rich.

Clearly, though, if we want our health care organizations to preserve and protect patients' and the public health, we need them to be lead by leaders who care much more about health care than about short-term revenue and making themselves rich.

As we have said endlessly, true health care reform would put in place leadership
that understands the health care context, upholds health care
professionals' values, and puts patients' and the public's health ahead
of extraneous, particularly short-term financial concerns. We need
health care governance that holds health care leaders accountable, and
ensures their transparency, integrity and honesty.

3 comments:

WTH. Who did these people call? As stated the job of this organization is to offer the most benefits to the community while remain financially viable. This means producing income slightly above expenses.

Investment income in these situations should be used for capital projects, not covering operating losses.

Our Tenth Anniversary

The tenth anniversary of Health Care Renewal was December 10, 2014. During our anniversary year, please help Health Care Renewal continue to challenge concentration and abuse of power in health care. Donate to FIRM, the Foundation for Integrity and Responsibility in Medicine, a US 501(c)3 non-profit. All contributions are US tax deductible as provided by US law. Our address is 16 Cutler St, Suite 104, Warren, RI, 02885. Email info at firmfound dot org for questions or comments.

FIRM welcomes support from individuals and non-profit organizations. If you are interested in donating to FIRM, please email info at firmfound dot org, snail mail us at 16 Cutler St, Suite 104, Warren, RI, 02885, USA, or see our web-site

Note that FIRM is a 501(c)3 that researches problems with leadership and governance in health care that threaten core values, and disseminates our findings to physicians, health care researchers and policy-makers, and the public at large. FIRM advocates representative, transparent, accountable and ethical health care governance, and hopes to empower health care professionals and patients to promote better health care leadership.

Health Wonk Review

Policies: Blog Roll and Comments

Our blogroll is meant to include blogs that provide interesting content relevant to what we write. It is not an endorsement in any way of any specific blog.

We accept comments, especially from registered Blogger users. If you do not wish to register with Blogger, we will accept anonymous comments, although prefer that they contain identification of the commenter.

We encourage thoughtful comments relevant to the issues brought up by the posts on Health Care Renewal.

All comments are moderated. We will reject spam, profanity, advertising of products or services not directly related to the content of this blog.

We will reject any unsubstantiated accusations or allegations.

Nonetheless, all comments represent only the opinions of those making them. The appearance of comments does not imply endorsement by the Health Care Renewal bloggers.

Please email general comments about the blog, other concerns, or questions to info AT firmfound DOT org